0001558370-22-007424.txt : 20220506 0001558370-22-007424.hdr.sgml : 20220506 20220505164102 ACCESSION NUMBER: 0001558370-22-007424 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 118 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220505 DATE AS OF CHANGE: 20220505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PennyMac Financial Services, Inc. CENTRAL INDEX KEY: 0001745916 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 831098934 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38727 FILM NUMBER: 22897100 BUSINESS ADDRESS: STREET 1: 3043 TOWNSGATE ROAD CITY: WESTLAKE VILLAGE STATE: CA ZIP: 91361 BUSINESS PHONE: (818) 224-7442 MAIL ADDRESS: STREET 1: 3043 TOWNSGATE ROAD CITY: WESTLAKE VILLAGE STATE: CA ZIP: 91361 FORMER COMPANY: FORMER CONFORMED NAME: New PennyMac Financial Services, Inc. DATE OF NAME CHANGE: 20180709 10-Q 1 pfsi-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           

Commission File Number: 001-38727

PennyMac Financial Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware

83-1098934

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification No.)

3043 Townsgate Road, Westlake Village, California

91361

(Address of principal executive offices)

(Zip Code)

(818224-7442

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, $0.0001 par value

PFSI

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class

Outstanding at May 3, 2022

Common Stock, $0.0001 par value

54,446,602

PENNYMAC FINANCIAL SERVICES, INC.

FORM 10-Q

March 31, 2022

TABLE OF CONTENTS

Page

Special Note Regarding Forward-Looking Statements

3

PART I. FINANCIAL INFORMATION

5

Item 1.

Financial Statements (Unaudited):

5

Consolidated Balance Sheets

5

Consolidated Statements of Income

6

Consolidated Statements of Changes in Stockholders’ Equity

7

Consolidated Statements of Cash Flows

8

Notes to Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

57

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

74

Item 4.

Controls and Procedures

76

PART II. OTHER INFORMATION

77

Item 1.

Legal Proceedings

77

Item 1A.

Risk Factors

77

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3.

Defaults Upon Senior Securities

77

Item 4.

Mine Safety Disclosures

77

Item 5.

Other Information

77

Item 6.

Exhibits

78

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (“Report”) contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” “continue,” “plan” or other similar words or expressions. 

 

Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include the following:

projections of our revenues, income, earnings per share, capital structure or other financial items;
descriptions of our plans or objectives for future operations, products or services;
forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and
descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues.

Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.

 

You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2022.

 

Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:

changes in prevailing interest rates;

our exposure to risks of loss resulting from adverse weather conditions, man-made or natural disasters, the effect of climate change, and pandemics, such as the corona virus (“COVID-19”);

failure to modify, resell or refinance early buyout loans or defaults of early buyout loans beyond our expectations;

the continually changing federal, state and local laws and regulations applicable to the highly regulated industry in which we operate;

lawsuits or governmental actions if we do not comply with the laws and regulations applicable to our businesses;

the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau (“CFPB”) and its enforcement of these regulations;

our dependence on U.S. government-sponsored entities and changes in their current roles or their guarantees or guidelines;

changes to government mortgage modification programs;

foreclosure delays and changes in foreclosure practices;

the licensing and operational requirements of states and other jurisdictions applicable to our businesses, to which our bank competitors are not subject;

3

our ability to manage third-party service providers and vendors and their compliance with laws, regulations and investor requirements;

changes in macroeconomic and U.S. real estate market conditions;

difficulties inherent in adjusting the size of our operations to reflect changes in business levels;

maintaining sufficient capital and liquidity and compliance with financial covenants;

our substantial amount of indebtedness;

increases in loan delinquencies and defaults;

our reliance on PennyMac Mortgage Investment Trust (“PMT”) as a significant source of financing for, and revenue related to, our mortgage banking business;

our obligation to indemnify third-party purchasers or repurchase loans if loans that we originate, acquire, service or assist in the fulfillment of, fail to meet certain criteria or characteristics or under other circumstances;

our exposure to counterparties that are unwilling or unable to honor contractual obligations, including their obligation to indemnify us or repurchase defective mortgage loans;

our ability to realize the anticipated benefit of potential future acquisitions of mortgage servicing rights (“MSRs”);

our obligation to indemnify PMT if our services fail to meet certain criteria or characteristics or under other circumstances;

decreases in the returns on the assets that we select and manage for our clients, and our resulting management and incentive fees;

the extensive amount of regulation applicable to our investment management segment;

conflicts of interest in allocating our services and investment opportunities among ourselves and PMT;

the effect of public opinion on our reputation;

our ability to effectively identify, manage and hedge our credit, interest rate, prepayment, liquidity and climate risks;

our initiation of new business activities or expansion of existing business activities;

our ability to detect misconduct and fraud;

our ability to effectively deploy new information technology applications and infrastructure;

our ability to mitigate cybersecurity risks and cyber incidents;

our ability to pay dividends to our stockholders; and

our organizational structure and certain requirements in our charter documents.

Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

 

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

4

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

    

March 31, 

December 31, 

    

2022

    

2021

(in thousands, except share amounts)

ASSETS

Cash

 $

489,799

 $

340,069

Short-term investment at fair value

78,006

6,873

Loans held for sale at fair value (includes $5,015,645 and $9,135,577 pledged to creditors)

5,119,234

9,742,483

Derivative assets

225,071

333,695

Servicing advances, net (includes valuation allowance of $88,755 and $120,940; $230,395 and $232,107 pledged to creditors)

616,874

702,160

Mortgage servicing rights at fair value (includes $4,662,515 and $3,856,791 pledged to creditors)

4,707,039

3,878,078

Operating lease right-of-use assets

85,262

89,040

Investment in PennyMac Mortgage Investment Trust at fair value

1,267

1,300

Receivable from PennyMac Mortgage Investment Trust

27,722

40,091

Loans eligible for repurchase

2,721,574

3,026,207

Other (includes $43,803 and $45,294 pledged to creditors)

546,054

616,616

Total assets

 $

14,617,902

 $

18,776,612

LIABILITIES

Assets sold under agreements to repurchase

 $

3,333,444

 $

7,292,735

Mortgage loan participation purchase and sale agreements

494,396

479,845

Obligations under capital lease

1,396

3,489

Notes payable secured by mortgage servicing assets

1,298,067

1,297,622

Unsecured senior notes

1,777,132

1,776,219

Derivative liabilities

90,837

22,606

Mortgage servicing liabilities at fair value

2,564

2,816

Accounts payable and accrued expenses

371,908

359,413

Operating lease liabilities

106,316

110,003

Payable to PennyMac Mortgage Investment Trust

159,468

228,019

Payable to exchanged Private National Mortgage Acceptance Company, LLC unitholders under tax receivable agreement

30,530

30,530

Income taxes payable

745,873

685,262

Liability for loans eligible for repurchase

2,721,574

3,026,207

Liability for losses under representations and warranties

42,794

43,521

Total liabilities

11,176,299

15,358,287

Commitments and contingencies – Note 16

STOCKHOLDERS’ EQUITY

Common stock—authorized 200,000,000 shares of $0.0001 par value; issued and outstanding, 55,341,627 and 56,867,202 shares, respectively

6

6

Additional paid-in capital

125,396

Retained earnings

3,441,597

3,292,923

Total stockholders' equity

3,441,603

3,418,325

Total liabilities and stockholders’ equity

 $

14,617,902

 $

18,776,612

The accompanying notes are an integral part of these consolidated financial statements.

5

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Quarter ended March 31, 

2022

2021

(in thousands, except earnings per share)

Revenues

Net gains on loans held for sale at fair value:

From non-affiliates

$

308,111

$

768,589

From PennyMac Mortgage Investment Trust

(9,652)

(14,248)

298,459

754,341

Loan origination fees:

From non-affiliates

65,516

95,845

From PennyMac Mortgage Investment Trust

2,342

8,192

67,858

104,037

Fulfillment fees from PennyMac Mortgage Investment Trust

16,754

60,835

Net loan servicing fees:

Loan servicing fees:

From non-affiliates

244,809

210,753

From PennyMac Mortgage Investment Trust

21,088

19,093

Other

25,361

29,599

291,258

259,445

Change in fair value of mortgage servicing rights and mortgage servicing liabilities

212,911

223,463

Change in fair value of excess servicing spread financing payable to PennyMac Mortgage Investment Trust

(1,037)

Mortgage servicing rights hedging results

(217,860)

(442,151)

(4,949)

(219,725)

Net loan servicing fees

286,309

39,720

Net interest expense:

Interest income:

From non-affiliates

53,882

81,694

From PennyMac Mortgage Investment Trust

387

53,882

82,081

Interest expense:

To non-affiliates

77,307

106,433

To PennyMac Mortgage Investment Trust

1,280

77,307

107,713

Net interest expense

(23,425)

(25,632)

Management fees from PennyMac Mortgage Investment Trust

8,117

8,449

Change in fair value of investment in and dividends received from PennyMac Mortgage Investment Trust

2

401

Results of real estate acquired in settlement of loans

543

780

Other

2,887

1,755

Total net revenues

657,504

944,686

Expenses

Compensation

245,547

258,829

Loan origination

75,333

87,392

Technology

34,786

33,672

Marketing and advertising

22,403

6,665

Professional services

20,103

13,286

Occupancy and equipment

9,469

9,038

Servicing

(1,246)

19,183

Other

16,589

10,613

Total expenses

422,984

438,678

Income before provision for income taxes

234,520

506,008

Provision for income taxes

60,927

129,140

Net income

$

173,593

$

376,868

Earnings per share

Basic

$

3.11

$

5.45

Diluted

$

2.94

$

5.15

Weighted average shares outstanding

Basic

55,831

69,113

Diluted

59,129

73,117

The accompanying notes are an integral part of these consolidated financial statements.

6

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Quarter ended March 31, 2022

Additional

Total

Number of

Par

paid-in

Retained

stockholders'

    

shares

    

value

    

capital

    

earnings

    

equity

(in thousands)

Balance, December 31, 2021

56,867

$

6

$

125,396

$

3,292,923

$

3,418,325

Net income

173,593

173,593

Stock-based compensation

794

2,471

2,471

Issuance of common stock in settlement of directors' fees

1

51

51

Repurchase of common stock

(2,320)

(127,918)

(13,494)

(141,412)

Common stock dividend ($0.20 per share)

(11,425)

(11,425)

Balance, March 31, 2022

55,342

$

6

$

$

3,441,597

$

3,441,603

Quarter ended March 31, 2021

Additional

Total

Number of

Par

paid-in

Retained

stockholders'

    

shares

    

value

    

capital

    

earnings

    

equity

(in thousands)

Balance, December 31, 2020

70,906

$

7

$

1,047,052

$

2,342,329

$

3,389,388

Net income

376,868

376,868

Stock-based compensation

707

4,001

4,001

Issuance of common stock in settlement of directors' fees

1

51

51

Repurchase of common stock

(4,653)

(288,519)

(288,519)

Common stock dividend ($0.20 per share)

(14,375)

(14,375)

Balance, March 31, 2021

66,961

$

7

$

762,585

$

2,704,822

$

3,467,414

The accompanying notes are an integral part of these consolidated financial statements.

7

PENNYMAC FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Quarter ended March 31, 

    

2022

    

2021

(in thousands)

Cash flow from operating activities

Net income

$

173,593

$

376,868

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Net gains on loans held for sale at fair value

(298,459)

(754,341)

Change in fair value of mortgage servicing rights, mortgage servicing liabilities and excess servicing spread

(212,911)

(222,426)

Mortgage servicing rights hedging results

217,860

442,151

Capitalization of interest and advances on loans held for sale

(1,926)

(90,177)

Accrual of interest on excess servicing spread financing payable to PennyMac Mortgage Investment Trust

1,280

Amortization of debt issuance costs

5,115

7,297

Change in fair value of investment in common shares of PennyMac Mortgage Investment Trust

33

(365)

Results of real estate acquired in settlement in loans

(543)

(780)

Stock-based compensation expense

9,275

10,877

Reversal of provision for servicing advance losses

(30,735)

(20,536)

Impairment of capitalized software

728

Depreciation and amortization

7,011

7,632

Amortization of right-of-use assets

3,778

3,382

Purchase of loans held for sale from PennyMac Mortgage Investment Trust

(13,160,768)

(18,420,615)

Origination of loans held for sale

(10,071,516)

(14,314,637)

Purchase of loans held for sale from non-affiliates

(628,769)

(1,443,255)

Purchase of loans from Ginnie Mae securities and early buyout investors

(3,186,214)

(4,355,102)

Sale to non-affiliates and principal payments of loans held for sale

31,267,022

37,268,200

Sale to PennyMac Mortgage Investment Trust of loans held for sale

259,038

Repurchase of loans subject to representations and warranties

(17,087)

(17,986)

Decrease in servicing advances

82,438

48,372

Decrease in receivable from PennyMac Mortgage Investment Trust

12,096

14,878

Sale of real estate acquired in settlement of loans

4,422

4,946

Decrease in other assets

14,999

22,912

(Decrease) increase in accounts payable and accrued expenses

(501)

46,896

Decrease in operating lease liabilities

(3,687)

(4,066)

(Decrease) increase in payable to PennyMac Mortgage Investment Trust

(76,811)

10,696

Increase in income taxes payable

60,611

129,155

Net cash provided by (used in) operating activities

4,427,364

(1,248,016)

Statements continue on the next page

The accompanying notes are an integral part of these consolidated financial statements.

8

PENNYMAC FINANCIAL SERVICES, INC.

(Continued) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Quarter ended March 31, 

    

2022

    

2021

(in thousands)

Cash flow from investing activities

Increase in short-term investment

(71,133)

(9,633)

Net change in assets purchased from PMT under agreement to resell

80,862

Net settlement of derivative financial instruments used for hedging of mortgage servicing rights

(287,735)

(527,458)

Acquisition of capitalized software

(19,430)

(10,056)

Decrease in margin deposits

213,467

245,505

Purchase of furniture, fixtures, equipment and leasehold improvements

(2,577)

(2,738)

Net cash used in investing activities

(167,408)

(223,518)

Cash flow from financing activities

Sale of assets under agreements to repurchase

24,928,688

35,805,822

Repurchase of assets sold under agreements to repurchase

(28,889,470)

(34,613,141)

Issuance of mortgage loan participation purchase and sale certificates

5,338,287

6,339,539

Repayment of mortgage loan participation purchase and sale certificates

(5,323,593)

(6,342,269)

Repayment of obligations under capital lease

(2,093)

(1,396)

Issuance of unsecured senior notes

650,000

Repayment of excess servicing spread financing

(134,624)

Payment of debt issuance costs

(2,409)

(13,475)

Issuance of common stock pursuant to exercise of stock options

976

1,670

Payment of withholding taxes relating to stock-based compensation

(7,780)

(8,546)

Payment of dividend to holders of common stock

(11,425)

(14,375)

Repurchase of common stock

(141,412)

(288,519)

Net cash (used in) provided by financing activities

(4,110,231)

1,380,686

Net increase (decrease) in cash and restricted cash

149,725

(90,848)

Cash and restricted cash at beginning of quarter

340,093

532,781

Cash and restricted cash at end of quarter

$

489,818

$

441,933

Cash and restricted cash at end of quarter are comprised of the following:

Cash

$

489,799

$

441,870

Restricted cash included in Other assets

19

63

$

489,818

$

441,933

Supplemental cash flow information:

Cash paid for interest

$

82,305

$

112,730

Cash paid (refunds received) for income taxes, net

$

316

$

(15)

Non-cash investing activities:

Mortgage servicing rights resulting from loan sales

$

616,302

$

470,533

Operating right-of-use assets recognized

$

$

3,243

Non-cash financing activities:

Mortgage servicing liabilities resulting from loan sales

$

$

6,962

Issuance of Excess servicing spread payable to PennyMac Mortgage Investment Trust
pursuant to a recapture agreement

$

$

557

Issuance of common stock in settlement of directors' fees

$

51

$

51

The accompanying notes are an integral part of these consolidated financial statements.

9

PENNYMAC FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1—Organization

PennyMac Financial Services, Inc. (“PFSI” or the “Company”) is a holding corporation and its primary assets are equity interests in Private National Mortgage Acceptance Company, LLC (“PNMAC”). The Company is the managing member of PNMAC, and it operates and controls all of the businesses and consolidates the financial results of PNMAC and its subsidiaries.

PNMAC is a Delaware limited liability company which, through its subsidiaries, engages in mortgage banking and investment management activities. PNMAC’s mortgage banking activities consist of residential mortgage loan production and servicing. PNMAC’s investment management activities and a portion of its loan servicing activities are conducted on behalf of PennyMac Mortgage Investment Trust (“PMT”), a publicly-traded real estate mortgage investment trust that invests primarily in mortgage-related assets. PNMAC’s primary wholly owned subsidiaries are:

PennyMac Loan Services, LLC (“PLS”) — a Delaware limited liability company that services portfolios of residential mortgage loans on behalf of non-affiliates and PMT, purchases, originates and sells new prime credit quality residential mortgage loans and engages in other mortgage banking activities for its own account and the account of PMT.

PLS is approved as a seller/servicer of mortgage loans by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and as an issuer of securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). PLS is a licensed Federal Housing Administration (“FHA”) Nonsupervised Title II Lender with the U.S. Department of Housing and Urban Development (“HUD”) and a lender/servicer with the Veterans Administration (“VA”) and U.S. Department of Agriculture (“USDA”) (each of the above an “Agency” and collectively the “Agencies”).

PNMAC Capital Management, LLC (“PCM”)— a Delaware limited liability company registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. PCM has an investment management agreement with PMT.

Note 2—Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States (“GAAP”) as codified in the Financial Accounting Standards Board’s Accounting Standards Codification for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by GAAP for complete financial statements. This interim consolidated information should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, income, and cash flows for the interim periods presented, but are not necessarily indicative of income to be anticipated for the full year ending December 31, 2022. Intercompany accounts and transactions have been eliminated.

Preparation of financial statements in compliance with GAAP requires management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.

10

Note 3—Concentration of Risk

A portion of the Company’s activities relate to PMT. Revenues generated from PMT (generally comprised of gains on loans held for sale, loan origination and fulfillment fees, loan servicing fees, change in fair value of excess servicing spread financing (“ESS”), net interest, management fees, and change in fair value of investment in and dividends received from PMT) totaled 6% and 9% of total net revenue for the quarters ended March 31, 2022 and 2021, respectively. The Company also purchased 55% and 54% of its newly originated loan production from PMT during the quarters ended March 31, 2022, and 2021, respectively.

Note 4—Related Party Transactions

Transactions with PMT

Operating Activities

Mortgage Loan Production Activities and MSR Recapture

The Company sells newly originated loans to PMT under a mortgage loan purchase agreement. The Company has typically utilized the mortgage loan purchase agreement for the purpose of selling to PMT conforming balance non-government insured or guaranteed loans, as well as prime jumbo residential mortgage loans.

MSR Recapture

Pursuant to the terms of an MSR recapture agreement by and between the Company and PMT, which was amended and restated for a term of five years effective July 1, 2020, if the Company refinances mortgage loans for which PMT holds the MSRs, the Company is generally required to transfer and convey to PMT cash in an amount equal to:

40% of the fair market value of the MSRs relating to the recaptured loans subject to the first 15% of the “recapture rate”;
35% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 15% and up to 30%; and
30% of the fair market value of the MSRs relating to the recaptured loans subject to the “recapture rate” in excess of 30%.

The “recapture rate” means, during each month, the ratio of (i) the aggregate unpaid principal balance of all recaptured mortgage loans, to (ii) the aggregate unpaid principal balance of all mortgage loans for which the Company held the MSRs and that were refinanced or otherwise paid off in such month. The Company has also agreed to allocate sufficient resources to target a recapture rate of at least 15%.

Fulfillment Services

The Company provides PMT with certain mortgage banking services, including fulfillment and disposition-related services, for which it receives a monthly fulfillment fee. Pursuant to the terms of a mortgage banking services agreement, the fulfillment fees shall not exceed the following:

the number of loan commitments multiplied by a pull-through factor of either .99 or .80 depending on whether the loan commitments are subject to a “mandatory trade confirmation” or a “best efforts lock confirmation”, respectively, and then multiplied by $585 for each pull-through adjusted loan commitment up to and including 16,500 per quarter and $355 for each pull-through adjusted loan commitment in excess of 16,500 per quarter, plus